Iran's Economic Resilience Against Snapback Sanctions Will Grow Over Time
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Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time By Mark Dubowitz, Annie Fixler, and Rachel Ziemba June 2015 Foreword by Mark Dubowitz & Annie Fixler1 As the P5+1 and Iran enter the final days to conclude a nuclear agreement, the details of the emerging deal are becoming clearer. In the final deal, Iran is likely to receive substantial payments from oil assets currently held in escrow accounts.2 Sanctions on Iran’s crude oil export transactions appear likely to be suspended, as will sanctions on key sectors of the Iranian economy including upstream energy investment and energy-related technology transfers, auto, petrochemicals, and shipping, as well as the precious metals trade. The timing of this sanctions relief is still being negotiated between Iran and the P5+1—the Iranian Supreme Leader has demanded an immediate lifting of all sanctions3 while the P5+1 position reportedly remains that sanctions relief will follow verifiable (but not necessarily irreversible) nuclear commitments. Sanctions on Iran’s central bank are also likely to be waived; many of Tehran’s previously sanctioned banks will be de-designated; and, with the coordinated lifting of European banking sanctions, these banks will find their way back onto the SWIFT financial messaging system. The Obama administration is also likely to lift sanctions on many Iranian entities designated for their role in Iran’s nuclear program.4 These “de-designations” reportedly may also include entities which were sanctioned for a variety of illicit activities, notably ballistic missiles, money laundering, and sanctions evasion, in addition to those that are strictly nuclear-related. Whether or not these de-designations will include specific Islamic Revolutionary Guard Corps (IRGC) entities, like NIOC (the National Iranian Oil Company), the giant IRGC conglomerate Khatam al-Anbiya, and IRGC banks remains an open question.5 Finally, 1. This analysis is coauthored by the FDD’s Center on Sanctions and Illicit Finance and Roubini Global Economics. As an independent economics research firm, Roubini Global Economics does not take a view on which policies the United States should adopt with respect to Iran. FDD is a non-profit, non-partisan, policy institute whose experts have written extensively on U.S. policy toward Iran. Both organizations believe that a better understanding of the impact of sanctions and sanctions relief on Iran’s economy can help inform policy choices. Jennifer Hsieh and Helen Henton contributed to the analysis. 2. Carol E. Lee & Jay Solomon, “U.S. Suggests Compromise on Iran Sanctions,” The Wall Street Journal, April 17, 2015. (http://www.wsj. com/articles/u-s-suggests-compromise-on-iran-sanctions-1429308388) 3.John Hudson, “Iran’s Supreme Leader Issues New Demands as Deadline Looms,” Foreign Policy, June 23, 2015. (http://foreignpolicy. com/2015/06/23/irans-supreme-leader-issues-new-demands-as-deadline-looms/) 4. Bradley Klapper & Matthew Lee, “US Finds Peeling Back the Iran Sanctions Onion No Easy Task,” Associated Press, June 10, 2015. (http://abcnews.go.com/Politics/wireStory/us-finds-peeling-back-iran-sanctions-onion-easy-31646223) 5. James S. Robbins, “Can Obama Lift Iran Terrorism Sanctions in Nuclear Deal?,” USA Today, June 10, 2015. (http://www.usatoday.com/ story/opinion/2015/06/10/iran-obama-sanctions-terrorism-column/71010780/) Mark Dubowitz is executive director of the Foundation for Defense of Democracies (FDD) and heads its Center on Sanctions and Illicit Finance (CSIF). Annie Fixler is a policy anaylst at CSIF. Rachel Ziemba is senior director, Emerging and Frontier Markets at Roubini Global Economics.
European economic sanctions, almost exclusively based on Iran’s nuclear-related activities, will be terminated
leaving Iran free to sell its oil, access insurance services, re-engage with European banks, and expand its trade in
many key sectors.
The following report examines the impact of this sanctions relief on Iran’s economy. It builds on previous Roubini
Global Economics (RGE) and Foundation for Defense of Democracies (FDD) economic analysis reports which
have measured and forecasted the economic impact of sanctions relief.6 Our previous analyses assessed that Iran
would experience a moderate bounce-back in growth in FY 2014/15, which has been confirmed by Iranian officials
at just over 3%. This new report concludes that, if Iran receives the sanctions relief as outlined above, the country
is likely to experience moderate growth in FY 2015/16 followed by an acceleration of economic growth in FY
2016/17 as domestic investment begins to pick up. This report forecasts that Iran’s economic growth will average
about 3.5-4% after the initial two years of the agreement, suggesting it will slowly begin closing the output gap.7
The economic impact of sanctions relief is likely to be substantial, starting slowly after an agreement and building
over time. This relief will enable economic growth, and increased resilience against future sanctions-induced
economic pressure. Iran will benefit from regained access to its foreign assets, reduced transaction costs that
facilitate first greater imports, then some increase in oil export volumes, and finally investment at home and from
foreign players. The enforcement of the emerging nuclear deal is predicated on the ability of the United States and
the European Union to re-impose, or “snap” sanctions back into place if Iran violates its commitments. The efficacy
of the snapback, however, will diminish as Iran builds a more powerful and resilient economy and international
consensus over Iran’s nuclear program weakens over time.
International sanctions were developed over decades. It took years before a critical mass of international companies
terminated their business ties with Tehran. Once loosened, with many international companies positioning to get
back into Iran,8 it will likely be difficult to persuade these companies to leave again should Iran violate the nuclear deal.
Politically, snapbacks are also likely to be challenging to implement, regardless of agreed-to procedural mechanisms,
because the United States, European states, and members of the U.N. Security Council are likely to disagree on the
evidence, the seriousness of infractions, the appropriate level of response, and likely Iranian retaliation.
At the same time, the deal’s limits on certain Iranian nuclear activities will lapse—or “sunset”—after ten years
and many of the key nuclear restrictions will sunset after fifteen years. At that point, Iran will likely emerge with
an industrial-sized and widely dispersed nuclear program—with an advanced centrifuge-powered enrichment
6. Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy Will Slow but Continue to Grow Under Cheaper Oil and Current
Sanctions,” Foundation for Defense of Democracies & Roubini Global Economics, February 2015. (http://www.defenddemocracy.org/content/
uploads/publications/RoubiniFDDReport_FEB15.pdf); Paul Domjan, Mark Dubowitz, Jennifer Hsieh, & Rachel Ziemba, “Sanctions
Relief: What Did Iran Get?,” Foundation for Defense of Democracies & Roubini Global Economics, July 2014. (http://defenddemocracy.
org/content/uploads/general/RoubiniFDDReport.pdf); Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy, Out of the
Red, Slowly Growing,” Foundation for Defense of Democracies & Roubini Global Economics, October 2014. (http://defenddemocracy.
org/content/uploads/publications/RoubiniFDDReport_Oct14.pdf); & Mark Dubowitz & Rachel Ziemba, “When Will Iran Run out
of Money?,” Foundation for Defense of Democracies and Roubini Global Economics, October 2013. (http://www.defenddemocracy.org/
media-hit/when-will-iran-run-out-of-money/)
7. The output gap is the difference between the growth of Iran’s economy without sanctions and what it has experienced under sanctions.
8. Jay Solomon, “Oil, Auto Companies Make Plans to Invest in Iran if Sanctions Ease,” The Wall Street Journal, July 1, 2014. (http://online.
wsj.com/articles/oil-auto-companies-make-plans-to-invest-in-iran-if-sanctions-ease-1404257812); Cameron Glenn, “After Sanctions:
Iran Oil & Gas Boom,” The Iran Primer, May 8, 2015. (http://iranprimer.usip.org/blog/2015/may/08/after-sanctions-iran-oil-gas-boom);
& Saeed Kamali Dehghan, “Iranians and Multinationals Hungry For Nuclear Deal That Will End Sanctions,” The Guardian (U.K.),
November 14, 2014. (http://www.theguardian.com/world/2014/nov/14/iranains-multinationals-hungry-nuclear-deal-to-end-sanctions)
Foundation for Defense of Democracies & Roubini Global Economics
2capacity that will leave Tehran as a threshold-nuclear state with the “breakout” capability to enrich rapidly a
bomb’s worth or more of weapons-grade uranium. At that point, when Iran could engage in a rapid breakout or a
clandestine “sneak-out” to a nuclear weapon, U.S. and international leverage and ability to use economic pressure
to peacefully deter Iran likely will be much weaker than at any time during the life of the agreement. Indeed, in the
years leading up to that point, increasing Iranian economic resilience could make it more difficult to use economic
pressure to respond to Iranian incremental cheating or stonewalling of weapons inspectors as Tehran “inches-out”
to free itself from the existing restrictions on its program.
FDD has previously outlined a more effective way to provide smart sanctions relief.9 The relief plan should provide
incentives for Iranian compliance with a nuclear deal while also predicating any suspension and eventual lifting of
sanctions imposed for both nuclear and non-nuclear reasons like ballistic missiles, terrorism, money laundering,
and sanctions evasion on verifiable steps by Iran to cease the conduct for which the sanctions were imposed in
the first place. This new RGE-FDD report raises serious concerns about how the emerging nuclear agreement
may affect the Iranian economy—and in turn, the ability of the United States and its allies to maintain sufficient
leverage to effectively enforce an agreement that provides Tehran with an expanding nuclear program through a
period in which economic pressure will be diminishing.
Macroeconomic Takeaways by Rachel Ziemba
The Near-Term Impact of Sanctions Relief
• The report assesses the impact of the reported sanctions relief on Iran’s economy in the next 18-24
months and how it might change Iran’s resilience to future sanctions pressure over the longer term. The
impact of a deal depends not only on its composition, the sequencing of sanctions suspension, and the
subsequent business decisions of Iran’s trading partners, but also on Iranian government policy choices
around foreign investment and its use of increasingly accessible reserves and revenues.
• The economic benefits of a deal will build over time. The economic impact of sanctions relief will
start slowly after an agreement and build over time. Iran will benefit from regained access to its foreign
assets, reduced transaction costs that facilitate first greater imports, then some increase in oil export
volumes, and finally investment at home and from foreign players. Under this scenario, after growing
around 3.2% in 2014/15, Iran’s economic growth is likely to moderate at around 2.6% in FY 2015/16
(which ends in March 2016) and accelerate in 2016/17, as domestic investment picks up, consumption
remains the key growth driver, and net exports become less of a drag as oil export volumes begin to
pick up. Iran’s GDP growth could reach a 4%-plus pace as early as FY 2016/17 as its economy continues
catching up from years of stagnation and recession and should remain at that pace in FY 2017/18.
Should Iran’s government choose to save more of its foreign assets rather than spend them or should
foreign actors be sluggish in picking up Iranian oil inventories or starting to invest, the pace of growth
would be somewhat slower.
• More meaningful reforms to improve the business environment would be necessary to increase output
growth beyond a 4% pace. Inflation will likely remain contained below 20% (admittedly high compared
to global peers but sharply reduced from 2012-2013 period of sanctions escalation). The rial will be
9. Mark Dubowitz & Richard Goldberg, “Smart Relief After an Iran Deal,” Foundation for Defense of Democracies, June 2014. (http://www.
defenddemocracy.org/content/uploads/documents/Final_Smart_Sanctions_Report.pdf); Mark Dubowitz, “Examining What a Nuclear Iran
Deal Means for Global Security,” Testimony before the House Committee on Foreign Affairs Subcommittee on the Middle East and North Africa,
November 20, 2014. (http://www.defenddemocracy.org/content/uploads/documents/Dubowitz_Testimony_Nov20_2014.pdf)
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
3relatively stable as oil export volumes partly offset the import surge, and an improvement in sentiment
increases the willingness of local actors to hold Iranian assets.
• With the reported deal based on a plan to provide Iran with access to its frozen assets and suspend
rather than lift several of the most impactful sanctions, the initial effects of the deal will be skewed
toward supporting imports and improving Iran’s purchasing power by reducing transaction
costs. Investment will lag, and will likely only become more pronounced in FY 2017/18 when foreign
investors move beyond an initial phase. In addition to uncertainty about sanctions, Iran’s business
climate remains a likely deterrent for investors, given the dominance of IRGC-linked groups in key
sectors, a lack of investor protections, and the difficulty in accessing credit.
Figure 1: Summary of Key Economic Indicators
2011/12 2012/13 2013/14 2014/15(f) 2015/16(f) 2016/17(f)
Aggregate
Real GDP Growth (%) 3.7% -6.6% -1.9% 3.2% 2.6% 4.1%
Real Total
Growth (%) 2.9% -2.6% -0.6% 3.5% 4% 3.8%
Consumption
Reserves Total 92 104 118 130 120-150 125
Unrestricted 25 20 50* N/A
Average 21.5% 30.5% 34.7% 15.6% 16.7% 15%
CPI Inflation
End of Period 20.5% 41.2% 19.7% 17.2% 15% 17%
25,979 - 26,693 - 27,440 -
Exchange Official 12,260 12,260 25,444
26,504 28,918 30,328
Rate (IRR/
Unofficial/ 33,100 - 32,479 - 32,840 -
USD, eop) 19,050 34,325 30,250
Black Market 34,100 34,488 36,402
Per Capita
Real GDP 100.0 93.4 91.6 94.4 97.0 101.4
(2011=100) Total
100.0 97.4 96.8 100.5 105.0 108.6
Consumption
* The degree of unrestricted reserves is highly contingent on the terms of any final deal.
Source: Roubini Global Economics, Haver Analytics, International Monetary Fund, and Jutab Marin
International Consulting Co.
• Iranian government’s policy choices matter: Sanctions relief provided under the Joint Plan of Action
(JPOA) demonstrated that the way in which the Iranian government allocates resources within the
economy will be pivotal to determining the scale, scope, and composition of growth patterns and
deciding who benefits within the economy. This report assumes that the government will spend some
of its foreign assets to support the real economy, carry out some modest structural reforms to improve
the business climate, and gradually compromise on its terms with foreign investors in the pivotal
energy sector. Failing to take any of these steps would temper the benefit of a deal to Iran’s economy and
population. Additionally, the Iranian government might choose to spend more on supporting Iran’s
Foundation for Defense of Democracies & Roubini Global Economics
4overseas military and terrorist activities, which would change the composition of growth domestically
and could leave less for domestic projects.
• After a bounce-back in 2014/15: Economic activity bounced back in 2014 due in large part to sanctions
relief provided under the JPOA, the decision by the Obama administration to de-escalate the sanctions
pressure through the blocking of new sanctions legislation, improvements in sentiment towards the
Iranian economy by domestic actors, and improved economic and fiscal policy choices by the Rouhani
government compared to its predecessor which helped reduce inflation. With oil export volumes
stabilizing around 1.1-1.3 mbd, and Iran regaining access to $11.9 billion in monies previously trapped
in oil escrow accounts, domestic demand bounced back, inflation dropped, and there was a mini-
boom in investment as construction projects restarted. Although domestic fixed investment levels in
the economy remain well below 2011 levels, activity nonetheless picked up and growth averaged just
over 3%, as highlighted in our February report.10
• A slow start to 2015/16: Since mid-2014, however, economic momentum has slowed, and we expect
growth will decelerate to 2.6% (about 1 percentage point higher than in a scenario where the JPOA is
extended indefinitely). Dashed hopes of immediate economic improvements to the average Iranian
citizen, lower oil prices and greater austerity caused growth to stagnate at the end of the last fiscal year
and early in the current fiscal year. While the trend partly reflects only a stabilization after the previous
bounce-back, it does suggest that financial conditions remain tight and the private sector cautious
about investing. Although a final deal will likely improve domestic sentiment as early as Q3 2015,
uncertainty of implementation, lower oil prices, and tight domestic policy all suggest growth will be
slow to pick up in the second part of the year, leaving gains to the future.
• Oil is a drag: Oil export volumes will pick up slowly, and low global oil prices, ample domestic oil
inventories, and uncertainty about investment terms all suggest that new energy-sector output and
investment will lag. Lower oil prices seem to have reduced the willingness of trading partners to
increase oil volumes in the face of sanctions, and some buyers may remain cautious as they test the
implementation of sanction suspensions. The decisions of key OPEC competitors like Saudi Arabia
may also weigh on the speed at which buyers are willing to purchase cargos.
• Benefits to build in 2016/17 and beyond: With investors uncertain about remaining sanctions liability,
counterparty risk, supply chain issues, as well as the terms they will receive from Iranian players, we
assume investment will pick up slowly. Foreign investors will likely remain in the exploration phase,
waiting for new contracts. By 2016/17, oil prices should increase towards a $75 average, supporting
revenues, and government spending should support construction. In future years, investment could
be a more meaningful driver of growth which should broaden out beyond consumption. However,
investment will remain well below 2011 levels for the better part of the next decade.
• ‘No deal’ scenarios: The negotiators could agree to extend the talks; alternatively, the negotiations
could fail, triggering the imposition of new sanctions. An extension of talks would result in
economic stagnation for Iran rather than a return to recession. If no deal is reached in the coming
weeks and the negotiations continue through year end, Iran’s GDP growth would be weaker in 2015/16
10. Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy Will Slow but Continue to Grow Under Cheaper Oil and Current
Sanctions,” Foundation for Defense of Democracies & Roubini Global Economics, February 2015. (http://www.defenddemocracy.org/
content/uploads/publications/RoubiniFDDReport_FEB15.pdf)
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
5(closer to the 1.5% we forecasted in our February report11) as the Iranian government hunkers down,
holding back on spending its assets in the escrow accounts and purchasing fewer goods, even from the
countries where it can use those locked-up funds. In the event of a breakdown in the talks, we assume
Iran would rely more on barter agreements with Russia and China, which would be able to set prices
and determine the terms of the trade relationship. The prospect of little new oil output might marginally
increase global oil prices and Iran’s oil revenues, but would do little to support growth. In the event
of an outright failure in the talks, we envision a much more adverse outlook for Iran’s economy, with
growth flatlining and recession a possible risk if new sanctions are imposed. An outright failure in
the negotiations could set in motion new sanctions, though the enforcement of these measures would
depend on how the breakdown of the talks was interpreted in the international community and an
assessment of the impact of U.S. secondary sanctions.
Looking Ahead: Future Resilience and ‘Snapback Sanctions’
• In the next five-to-10 years, we assume Iranian growth would rise slightly above 3.5-4% if the government
front-loads structural reforms, attracts meaningful investment, and avoids the development of asset
bubbles. As with the short-term impact, Iran’s economic growth path and its resilience to new sanctions
depend on the policies its government takes today and in years to come to support investment and
diversify its economy and funding structure. Should Iran’s economy remain dominated by government-
and military-linked entities and fail to clean up bad loans, it may settle into a lower pace of growth.
• The effectiveness of the snapback will likely diminish as Iran builds a more powerful and resilient economy.
And we assume it would be difficult to gain the same consensus on Iran’s nuclear program and on the
appropriate response to Iranian violations five-to-10 years from now given the evolution of domestic
trade patterns and other geopolitical developments (changes in Russia, China, Turkey, for example).
• A number of policy decisions will have a meaningful effect on the Iranian economy’s resilience to
snapback sanctions:
1. Asset allocation: Where Iran’s government chooses to put its assets will likely affect how
difficult they are to target in a snapback scenario.
2. Choice of spending versus savings: Should the Iranian government choose to deploy more of
its revenue to local projects, it could result in stronger near-term growth, but it would reduce
capital available for future projects or reduce the cushion against future shocks.
3. Investment terms for Iran’s energy sector: Should the terms be attractive enough to persuade
international energy companies to return to Iran, investments could form a significant deterrent
to the re-imposition of sanctions by their national governments.
4. Fiscal reforms: Should Iran’s government further rationalize spending or diversify financing
sources domestically, its resilience to sanctions would increase.
5. Dominance of SOEs/IRGC and other entrenched players: Will sanctions relief increase
private competition against entrenched interests? Will this build up a domestic constituency
with sufficient pressure to persuade the Iranian government to comply with a nuclear deal?
11. Jennifer Hsieh, Rachel Ziemba, & Mark Dubowitz, “Iran’s Economy Will Slow but Continue to Grow Under Cheaper Oil and Current
Sanctions,” Foundation for Defense of Democracies & Roubini Global Economics, February 2015. (http://www.defenddemocracy.org/
content/uploads/publications/RoubiniFDDReport_FEB15.pdf)
Foundation for Defense of Democracies & Roubini Global Economics
6Or will the IRGC and other entrenched interests successfully resist greater competition and
undermine Iranian nuclear compliance?
The Policy Conundrum: Nuclear vs Economic Timelines12
Under the emerging Iran nuclear agreement, there is an inherent asymmetry between an expanding Iranian
nuclear program and diminishing economic leverage. Tehran over time will be permitted to develop an industrial-
sized nuclear program with zero or near-zero breakout and will build a strong economy increasingly immunized
against future economic pressure—and the United States and its allies will increasingly lose economic leverage to
peacefully prevent Iran from developing nuclear weapons.
The emerging deal does not link the sunset of restrictions on Iran’s nuclear activities to a broader conclusion by
the International Atomic Energy Agency (IAEA) that Iran is not engaged in any undeclared nuclear activities and
its program is entirely peaceful in nature. The IAEA issues these so-called broader conclusions13 for states whose
nuclear programs pose no proliferation concern because there is “no indication of diversion of declared nuclear
materials from peaceful nuclear activities” and “no indication of undeclared nuclear material or activities.” On
June 10, the IAEA issued the key findings from its latest safeguards implementation report and noted that the
Agency had reached a broader conclusion for 65 countries.14
In this latest report, the IAEA instead concluded about Iran:
“Contrary to the relevant binding resolutions of the Board of Governors and the United
Nations Security Council, Iran did not: implement the provisions of its additional protocol;
implement the modified Code 3.1 of the Subsidiary Arrangements General Part to its
Safeguards Agreement; suspend all enrichment related activities or suspend all heavy water
related activities. Neither did Iran resolve the Agency’s concerns about possible military
dimensions to Iran’s nuclear programme. This resolution is necessary in order to establish
international confidence in the exclusively peaceful nature of that programme.”15
Rather than link the expansion of Iran’s program to a broader conclusion, the deal will allow Iran to ramp up its nuclear
program after an arbitrary ten-year period with many of the key nuclear restrictions sunsetting after fifteen years.
Information in the following two tables is drawn from analysis of the U.S. fact sheet on the Joint Comprehensive Plan
of Action (JCPOA) from April 2, 2015.16
12. This section was written by Mark Dubowitz and Annie Fixler and adapted from their analysis: “Sunsets and Snapbacks: The Asymmetry
Between an Expanding Iranian Nuclear Program and Diminishing Western Leverage,” Foundation for Defense of Democracies, June 18,
2015. (http://www.defenddemocracy.org/media-hit/sunsets-and-snapbacks)
13. International Atomic Energy Agency, “Safeguards Statement for 2014,” June 2015, page 5. (https://www.iaea.org/sites/default/files/
sir_2014_statement.pdf)
14. Sasha Henriques, “Safeguards Implementation Report 2014 Presented to Board of Governors,” IAEA Office of Public Information and
Communication, June 10, 2015. (https://www.iaea.org/newscenter/news/safeguards-implementation-report-2014-presented-board-governors)
15. International Atomic Energy Agency, “Safeguards Statement for 2014,” June 2015, page 7. (https://www.iaea.org/sites/default/files/
sir_2014_statement.pdf)
16. “Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program,” The White House,
April 2, 2015. (https://www.whitehouse.gov/sites/default/files/docs/parametersforajointcomprehenisveplanofaction.pdf)
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
7Figure 2: Iran’s Nuclear Program Will Grow as Restrictions Expire: 17
Years 0-10, Iran can: • Perform R&D on advanced centrifuges.
• Continue to produce centrifuges and components.
• Enriched uranium at Natanz up to 3.67%.
• Maintain a stockpile of no more than 300 kg of 3.67% enriched uranium.
After 10 years, Iran can: • Increase the number of operating centrifuges enriching at Natanz
beyond 5,060 IR-1s.
• Operationalize advanced centrifuges at Natanz.
• Reduce its breakout time to less than one year and then to near zero in
years 13-15.17
After 15 years, Iran can: • Build and operate an unlimited number of enrichment facilities.
• Install and operate an unlimited number of existing centrifuges and
advanced centrifuges.
• Enrich uranium at Fordow.
• Enrich uranium above 3.67%.
• Increase its stockpile of LEU above 300 kg.
• Build additional heavy water reactors and accumulate heavy water.
Permanent restrictions: • All spent fuel from modified Arak heavy water reactor shipped out of Iran.
• No reprocessing or reprocessing R&D.
• Iran implements the Additional Protocol and Modified Code 3.1.
Figure 3: IAEA’s Access Will Diminish:
After 20 years, the IAEA can • Conduct continuous surveillance of centrifuge component
no longer: manufacturers.
After 25 years, the IAEA can • Have access to uranium mines and continuous surveillance at uranium
no longer: mills.
Permanent access: • IAEA will have certain access rights.18
As a result of this agreement, after fifteen years, Iran will likely have an industrial-sized and widely dispersed
nuclear program, with unlimited advanced centrifuge capacity, virtually undetectable breakout, and multiple
heavy-water reactors—all of which will be increasingly seen as legitimate by the international community.
Simultaneously, over time, the agreement will leave only residual economic leverage to peacefully deter Iranian
nuclear weapons development because sanctions relief will enable Iran to expand its economy and build economic
resiliency to future sanctions pressure.
17. “Transcript: President Obama’s Full NPR Interview on Iran Nuclear Deal,” NPR, April 7, 2015. (http://www.npr.
org/2015/04/07/397933577/transcript-president-obamas-full-npr-interview-on-iran-nuclear-deal)
18. “Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program,” The White House,
April 2, 2015, pages 2-3. (https://www.whitehouse.gov/sites/default/files/docs/parametersforajointcomprehenisveplanofaction.pdf)
Foundation for Defense of Democracies & Roubini Global Economics
8Figure 4: Economic Recovery as a Result of JPOA Sanctions Relief: 1920212223
• A deceleration of the sanctions pressure led to a change in market sentiment,19 with improved
confidence levels leading to improved economic performance.
• Iran has received $11.9 billion in direct payments from escrow accounts in which oil revenues have
been accumulating, a significant amount for a country with no more than $20 billion in fully accessible
foreign exchange reserves prior to the JPOA.21
• The Iranian economy has shown signs of stabilization and modest growth. Economic growth rebounded
from the negative growth rate of 6% in FY 2012/13 to positive average growth of 3-3.3% in FY 2014/15.
Figure 5: Economic Expansion as a Result of Sanctions Relief in a Final Deal:
• Iran may receive a lump-sum payment of as much as $30-$50 billion from its semi-restricted escrow
accounts and periodic transfers over time.22 Iran’s overseas foreign exchange funds reportedly are
valued at about $150 billion.23
• Iran’s oil revenues may increase by $22 billion annually within a few years, if Iran increases its exports
by 1 mbd going back to the pre-sanctions level of 2.2 mbd. This report anticipates that oil exports
will grow from 1.3 mbd to 2 mbd over the next 12 months, providing Iran, before July 2016, with an
additional $15.4 billion (at the price of $60 per barrel) which it will find easier to repatriate.
• As a result of these trends, Iran’s economic growth may stabilize around 2.6% in FY 2015/16, and then
accelerate to about 4% in FY 2016/17.
• In addition to uncertainty about sanctions in the early years after the final deal, Iran’s business climate
remains a possible deterrent for investors, given the dominance of IRGC-linked groups and quasi-state
banks. However, investment is likely to begin picking up in FY 2017/18. Investment will remain well
below 2011 levels even in 2018.
• During years five-to-10, economic growth may average 3.5-4%, if the government front-loads structural
reform, attracts meaningful investment, and avoids the development of asset bubbles.
Snapback sanctions (the re-imposition of sanctions in response to Iranian violations of its obligations) may be
somewhat successful in the early years of the agreement when international companies are still reluctant to return
to Iran, Tehran’s economic recovery is still modest, and countries are still relatively united in their response to
Iranian violations. However, snapbacks are likely to become much less effective in the later years. The international
sanctions regime took decades to put in place and have an impact on Iran’s economy and decision-making. In the
later years of the agreement, international companies may have invested tens of billions of dollars back into Iran
and will likely be less willing to forgo their business interests because of Iranian nuclear violations.
19. For a detailed analysis of the economic impact of the de-escalation of sanctions (since mid-2013), the optimism surrounding the
election of President Rouhani (June 2013), the announcement of the JPOA agreement (November 2013), the announcement of the
JPOA implementation agreement (January 2014), and the subsequent direct sanctions relief, see Mark Dubowitz & Paul Domjan, “New
Sentiment Indicator Shows Positive Impact of Sanctions Relief on Iran’s Economy,” Foundation for Defense of Democracies & Roubini
Global Economics, May 15, 2014. (http://www.defenddemocracy.org/content/uploads/documents/Final_Sentiment_Report.pdf)
20. Department of the Treasury, “Frequently Asked Questions Relating to the Extension of Temporary Sanctions Relief through June
30, 2015, to Implement the Joint Plan of Action between the P5 + 1 and the Islamic Republic of Iran,” November 25, 2014, pages 5-6,
(http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_ext_faq_11252014.pdf)
21. Mark Dubowitz & Rachel Ziemba, “When Will Iran Run out of Money?,” Foundation for Defense of Democracies and Roubini Global
Economics, October 2013. (http://www.defenddemocracy.org/media-hit/when-will-iran-run-out-of-money/)
22. Carol E. Lee & Jay Solomon, “U.S. Suggests Compromise on Iran Sanctions,” The Wall Street Journal, April 17, 2015. (http://www.
wsj.com/articles/u-s-suggests-compromise-on-iran-sanctions-1429308388)
23. Jeffrey Goldberg, “‘Look ... It’s My Name on This’: Obama Defends the Iran Nuclear Deal,” The Atlantic, May 21, 2015. (http://www.
theatlantic.com/international/archive/2015/05/obama-interview-iran-isis-israel/393782/)
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
9It is also at this point, particularly after year ten of the agreement when key constraints on Iran’s nuclear program
disappear, that economic leverage will be needed most to deter Iranian violations and to prevent Tehran from
using its expanding nuclear infrastructure to move to a nuclear weapon.
Sunsets and snapbacks are fundamental design flaws of the emerging nuclear agreement. They give Iran an asymmetrical
advantage as it expands its nuclear program under diminishing, and difficult-to-reestablish, economic pressure.
Economic Impact of the Composition and Sequencing of a Final Deal
Nuclear negotiators are currently working to finalize a deal which would include a sequencing of sanctions relief
and nuclear concessions. Although the details of this agreement have yet to be revealed, the U.S. fact sheet on the
parameters of the Joint Comprehensive Plan of Action (JCPOA) released on April 2,24 as well as press reports since
then, give a framework for a possible final deal. We summarize the reported sanctions relief below and in Figure 6.
Key elements include:
1. Lump-sum payment reportedly of $30-50 billion in funds from Iran’s escrow accounts, with possible
phased access to additional funds over the course of several months and access to new earnings from
energy exports in the future.25
2. Suspension of financial sanctions on Iran’s energy trade, which will remove the need for oil buyers to seek
out “significant reduction” exceptions from the United States to engage in oil transactions with Iran.
3. Suspension of sanctions on key sectors like upstream energy investment, petrochemicals, shipping, and
auto-related trade.
4. Sanctions on Iran’s central bank will be waived, many of its previously sanctioned banks will be de-
designated, and, with the coordinated lifting of European banking sanctions, these banks will find their
way back onto the SWIFT financial messaging system.
5. Lifting of gold and precious metals sanctions.
6. Termination (or suspension with snapbacks) of most, if not all, European economic sanctions including
the EU oil embargo, banking and insurance sanctions, and sector-based sanctions.
7. Termination (or suspension with snapbacks) of U.N. sanctions which may diminish the international
legitimacy of U.S. snapback sanctions and the willingness of countries and their companies to comply
with these U.S. measures.
8. The measures are tilted toward allowing Iran access to assets that it has already accrued and reducing
transaction costs on trade, which should give the Iranian government (and possibly other actors) more
pricing power by allowing them to purchase goods from a wider range of suppliers. By having more
suppliers to choose from, Iran would likely become less reliant on goods from China, which have
dominated domestic investment. Over time the benefits could be much greater as Iran regains access
to the global financial system and gains access not only to trade finance but also to a wider array of
financing options. The degree of this benefit would depend on the progress towards lifting of sanctions
related to anti-money laundering measures.
24. “Parameters for a Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program,” The White House,
April 2, 2015, pages 2-3. (https://www.whitehouse.gov/sites/default/files/docs/parametersforajointcomprehenisveplanofaction.pdf)
25. Carol E. Lee & Jay Solomon, “U.S. Suggests Compromise on Iran Sanctions,” The Wall Street Journal, April 17, 2015. (http://www.wsj.
com/articles/u-s-suggests-compromise-on-iran-sanctions-1429308388)
Foundation for Defense of Democracies & Roubini Global Economics
10Figure 6: Summary Impact of Near-Term Sanctions Relief
Elements of Type of Expected Impact Comment/Signposts to Watch
Sanctions Relief Measure
Access to 30-50 Access to assets Facilitate imports from Choice of import supplier could allow Iran to increase
billion in FX preferred trade partners, the quality of imports rather than buying primarily from
savings diversify imports. key Asian economies. This could be impeded by logistical
hurdles, uncertainty among foreign banks, and/or
bureaucratic issues in Iran and partner banks abroad. Iran
may also decide to save these funds or provide support to
its regional allies including Hezbollah, the Assad regime in
Syria, Iranian-backed Shiite militias in Iraq, and Iranian-
backed Houthi militias in Yemen.
Oil exports Suspended Oil exports to grow from 1.3 Export volumes would rise as waiver program is phased
waiver sanctions mbd to 2 mbd over 12 months. out. Ample supply of oil and Iranian unwillingness to
relaxation discount crude could temper the increase in volumes. Iran
would initially draw on oil inventories (volumes held in
floating storage are estimated at 38-40 mb in NITC tankers,
plus possibly a few non-NITC vessels) before it restarts
mothballed production capacity and eventually increases
investment pending new contracts with IOCs.
Insurance/ Suspended Reduced transaction costs for Global banks may remain uncertain about implementation.
Financial sanctions non-oil trade, which reduce
services payments made to middle men.
Petrochemical Suspended Modest increase in exports. Glut of global petrochemicals (including from Saudi Arabia)
exports sanctions may limit demand for Iranian exports. There are some signs
that Iran is currently importing petrochemical products and
plastics from China.
Auto trade Suspended Increase in output, parts Impact began already in 2014 and should continue to be
sanctions imports, and domestic output concentrated on domestic production rather than exports.
that began in JPOA will Iran has imported significant volumes of car parts and
continue. vehicles.
Precious metals Suspended Moderate increase in gold Gold trade seems to be picking up modestly and will likely
trade sanctions imports as one way to repatriate be a part of Iran’s asset diversification. Still, underlying gold
to reduce profits. An improvement in demand in Iran is likely to remain well below 2012 levels
transaction household purchasing power due to tight monetary policy (which reduces the appeal of
costs may also fuel some demand. non-interest-bearing assets).
Multiplier effect Indirect Increase unsanctioned trade Non-oil exports are likely to continue to stagnate and fall
on non-oil trade due to lower transaction costs slightly as Iran is no longer as concerned about maximizing
(access to trade financing). revenue from other sectors given access to revenues. It would
find it difficult to continue boosting non-oil revenues.
Improved Indirect Global sentiment toward Iran Sentiment has been on a bumpy upswing but has softened
sentiment/ to improve, but investment since late 2014 as policy has tightened and Iran’s private
Investment to be modest when sanctions sector has been waiting for benefits.
are suspended—or until
companies do not believe that
suspended sanctions will be
re-imposed or penalties for
sanction violations levied.
Source: Roubini Global Economics
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
11In summary, we would expect to see some improvement in growth momentum in the latter part of the current fiscal
year (FY 2015/16), with Iran’s economy likely reaching a 4% growth rate in 2016/17 assuming that the government
spends some of the assets it receives and is able to increase oil exports. We assume a slow return to growth in the
current fiscal year for the following reasons:
1. Sanctions relief measures take time to build and will grow over time. The beginning of the current
fiscal year seems to have been weaker than the previous fiscal year as Iranian fiscal austerity dampened
growth, oil export revenues were softer, and trade volumes only slowly increased.
2. As a result of conservatism and a desire to save rather than spend funds, the Iranian government may
continue to focus on building up its resilience to future shocks, including potential snapback sanctions,
as it waits for foreign investors to come knocking. Fiscal and monetary policies in place are restraining
the growth of domestic demand.
3. Weaker oil prices led to a modest decline in oil exports in the first half of 2015, and we forecast that
the pick-up in export volumes will be moderate, in part because global demand for oil is growing only
slowly while other key OPEC members have substantially increased supply. Saudi Arabia is focused on
maintaining its market share rather than ceding space to Iran.
4. Import growth will be a drag on economic growth, particularly net exports, as most of the sanctions
relief measures will facilitate Iran’s access to the revenues that it has already accumulated rather than
encouraging investment in the short term. Moreover, Iran’s difficult business climate and the lack
of clarity on terms for new investment may keep foreign investors cautious about moving from the
exploration and MOU phases to actual investment.
5. Iran’s banks are ill-equipped to provide capital for new investment, and the private sector has few
resources to do so, having been crowded out by IRGC-led entities and construction.
Key Iranian decisions—whether to spend the assets that are now unlocked or save them, where to keep these
assets, whether to provide the population with access to foreign exchange, how much to spend on supporting its
overseas military and terrorist activities, and, critically, what terms it offers to foreign investors in the energy sector
and other crucial areas—will frame the impact of a final deal. Should Iranian authorities fail to recognize the extent
of global competition in the energy sector, for example, and therefore fail to facilitate deals with attractive payouts
and cost recovery, Iran might struggle to attract the necessary capital to revitalize its oil and gas sector.
In short, we assume that the most meaningful early impact of a final deal would be felt through improved
consumer and investor sentiment and increased imports as Iran’s access to greater revenues facilitates imports
and strengthens domestic demand. With most of these demands being met by imports, trade will be a drag
on growth but Iran’s gross domestic income could increase. Moreover, the lifting of financial sanctions could
increase the willingness of key export partners, initially in Asia, to increase oil export volumes. We assume that oil
exports will pick up first, with investment in the sector lagging until Iran has run down some of its inventories in
floating storage and until the Iranian government clarifies the terms of investing in the oil and gas sector. Indeed,
investment will also lag until sanctions enforcement bodies like OFAC (the Office of Foreign Assets Control at
the U.S. Treasury Department) offer more explicit guidance on what is allowed. Although European oil sanctions
are likely to be lifted or suspended, we assume European oil companies will be slower to re-enter the market. Oil
export volumes will likely be dominated by Asian economies and Turkey; though we could see some European
companies more quickly enter the resale market.
Foundation for Defense of Democracies & Roubini Global Economics
12Figure 7: Sentiment Stagnated in Late 2014/Early 2015 But at Much Improved Levels
from 2012/2013 (Red Line = Sentiment)
4 10%
2 8%
0 6%
-2 4%
2%
-4
0%
-6
-2%
-8
-4%
-10 -6%
-12 -8%
-14 -10%
-16 -12%
Q2-2007
Q4-2007
Q2-2008
Q4-2008
Q2-2009
Q4-2009
Q2-2010
Q4-2010
Q2-2011
Q4-2011
Q2-2012
Q4-2012
Q2-2013
Q4-2013
Q2-2014
Q4-2014
All Iran, 9ma GDP Y/Y (actual, RHS)
Source: Ravenpack, Central Bank of Iran, and Roubini Global Economics
The impact on the rial will be muted: Although increased oil export volumes will keep oil prices lower for longer in
2016, the increase in export volumes should still increase Iran’s international revenues. Both of these trends (access to
finance and stronger oil revenues) support an increase in domestic demand and imports. These, in turn, will limit the
positive impact of the new reserves and sentiment on the Iranian rial, which we anticipate will rise only moderately.
A meaningful increase in global oil prices and demand or stronger investment and portfolio inflows could trigger
a stronger rial than we forecast. On a structural longer-term basis, the rial should still depreciate as Iran’s inflation
remains much higher than that of the United States.
Inflation likely to stay under control at around 20%: Stronger growth will bring moderate inflationary pressure to
Iran; however, a gradually appreciating currency will help contain price pressures. Some increase in the ability of Iranian
individuals to send money abroad will reduce the risk of asset bubbles re-forming in equity and property markets.
Investment picks up slowly: We assume domestic and international investment will only start to accelerate toward
the end of 2017, with most of the benefits coming later in the decade. Investment cycles are long, given the need to
carry out due diligence; corporate assessments of potential sanctions liabilities could extend this process further. The
Iranian government could choose to prime the pump by investing in some public infrastructure projects or placing
deposits with local banks in exchange for a commitment to lend these funds out to the private sector (as they seem to
have done in the 2014/15 mini-investment boom). As we previously discussed, FY 2014/15 growth reflected a strong
bounce-back in construction and investment, and prompted extensive imports from China. It is highly likely that the
initial part of the new cycle would follow this pattern.
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
13Figure 8: Net Exports Become a Growth Driver Again in 2016 (contributions to GDP
growth, percentage points)
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
2012/13 2013/14 2014/15 2015/16 2016/17
Net Exports Total Consumption Gross Investment GDP YY
Source: Central Bank of Iran and Roubini Global Economics
Figure 9: Fixed Investment Remains Well Below Pre-Sanctions Levels, Even in 2016
(2010/11=100)
120
110
100
90
80
70
60
2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17
GDP Private Consumption Public Consumption Fixed Investment
Source: Central Bank of Iran and Roubini Global Economics
Foundation for Defense of Democracies & Roubini Global Economics
14Figure 10: Levels of Crude Oil Output and Revenue Will Grow
3000 140.0
2500 120.0
100.0
2000
80.0
1500
60.0
1000
40.0
500 20.0
0 0.0
Q4-2003
Q3-2004
Q2-2005
Q1-2006
Q4-2006
Q3-2007
Q2-2008
Q1-2009
Q4-2009
Q3-2010
Q2-2011
Q1-2012
Q4-2012
Q3-2013
Q2-2014
Q1-2015
Q4-2015
Q3-2016
Q2-2017
Q1-2018
Crude and Oil Product Exports Brent Crude
Source: Haver Analytics and Roubini Global Economics
Looking Ahead: Future Resilience and ‘Snapback Sanctions’
A key part of the reported deal as well as the Obama administration’s case to Congress is based on the assessment
that sanctions can be snapped back into place if Iran fails to abide by its nuclear obligations and that such a
“snapback” will be effective in imposing sufficient economic pressure to enforce an agreement. This report also
assesses how the economic trends we discussed above will affect Iran’s economic resilience to renewed sanctions
pressure five-to-10 years from now and beyond. As discussed earlier, it is at year ten when key restrictions on Iran’s
nuclear program will expire, between years five and 15 when Iran can diminish its breakout time, and after year 15
when many more of the restrictions on Iran’s nuclear program will sunset. At that point, Iran can emerge with an
industrial-size nuclear program with an advanced centrifuge-powered enrichment program that will bring Tehran
to a virtually undetectable breakout capability.
While it is difficult today to model Iran’s economy over the longer term, we focus on some of the major signposts
and policy measures that would impact its resilience and degree of vulnerability to new sanctions. Although our
modeling focuses on the outlook for Iran’s economy over the next two years, we include some general considerations
of the trends that will shape its economic growth over the coming five-to-10 years, which we assume could average
3.5-4% or higher, if the government front-loads structural reforms, attracts meaningful investment, and avoids the
development of asset bubbles. As with the short-term impact, Iran’s economic growth path and its resilience to
new sanctions depend on the policies its government takes today to support investment and diversify its economy
and funding structure.
In general, we assume that it would be more difficult to reconstitute the sanctions regime as major U.S. and EU
economic sanctions are suspended, even if several key sanctions, especially U.S. measures, remain on the books.
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
15The effectiveness of the “snapback” will likely diminish as Iran builds a more powerful and resilient economy.
And, we assume it would be difficult to gain the same consensus on Iran’s nuclear program and on the appropriate
response to Iranian violations five-to-10 years from now given the evolution of domestic trade patterns and other
geopolitical developments (changes in Russia, China, Turkey, among others).
The following policy decisions will have a meaningful effect on the Iranian economy’s resilience to new sanctions:
1. Asset allocation: Should Iran’s government choose to save the newly freed-up funds—perhaps in
foreign currency onshore (within Iran) or in jurisdictions less likely to comply with snapback sanctions
in order to reduce the risk that its assets could be frozen in any future sanctions process—the economy
would be more resilient to future sanctions.
2. Choice of spending versus savings: Iran’s $150 billion in FX reserves,26 a number suggested by the
U.S. government, are still relatively small compared to GDP (and to Iranian infrastructure and bank
recapitalization needs) but more than seven times the estimated size of Iran’s fully accessible FX reserves
prior to the JPOA27 and equal to about two to three years of oil revenues at the current price and pace
of production. Should the Iranian government choose to deploy more of its revenue to local projects,
it could result in stronger near-term growth, but it would reduce capital available for future projects or
reduce the cushion against future shocks.
3. Investment terms for Iran’s energy sector: Should the terms be attractive enough to convince
international oil companies and other national oil companies to begin investing significant sums of
money in Iran’s energy sector, these returns on capital and domestic labor could form a significant
deterrent to governments that might otherwise re-impose sanctions in response to Iranian non-
compliance with its obligations under the nuclear deal. International companies that reinvest in Iran
are likely to put pressure on national governments not to re-impose measures that would increase
sanctions on both their Iranian counterparts and foreign players and limit their own ability to do
business with Iran. Furthermore, as European companies reinvest in Iran, the United States may be less
likely to re-impose sanctions that penalize its European allies in a snapback scenario.
4. Fiscal reforms: A combination of sanctions and lower oil prices in 2012-14 encouraged Iran’s government
to first increase its revenues from non-energy sources and to scale back government spending to levels
that it could afford. The government has also reduced transfer payments and subsidy payments. Should
Iran’s government further rationalize spending or diversify financing sources domestically away from
energy, its resilience to sanctions would change.
5. Dominance of SOEs/IRGC and other entrenched players: State-owned enterprises and banks, as well
as thousands of IRGC-controlled entities, including key pillars of the Iranian economy such as NIOC
(the National Iranian Oil Company) and the IRGC conglomerate Khatam al-Anbiya, have increased
their role in Iran’s economy. These entities received privileged access to finance, billions of dollars in
no-bid government contracts, and engaged in sanctions busting. To the extent that these entities now
face greater competition from private enterprises (unlikely in the near term; possibly in the medium
term), this could increase the number of Iranians who are supportive of the deal and may put some
26. Jeffrey Goldberg, “‘Look ... It’s My Name on This’: Obama Defends the Iran Nuclear Deal,” The Atlantic, May 21, 2015. (http://www.
theatlantic.com/international/archive/2015/05/obama-interview-iran-isis-israel/393782/)
27. Mark Dubowitz & Rachel Ziemba, “When Will Iran Run out of Money?,” Foundation for Defense of Democracies and Roubini Global
Economics, October 2013. (http://www.defenddemocracy.org/media-hit/when-will-iran-run-out-of-money/)
Foundation for Defense of Democracies & Roubini Global Economics
16pressure on the Iranian government to avoid violations that trigger an imposition of sanctions. One
must, however, be cautious in overstating this given the entrenched interests that may resist greater
competition and undermine Iranian nuclear compliance.
Figure 11: Local Banks Are Unlikely to Support Demand (Growth in loans, % y/y)
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
Q2-2005 Q4-2006 Q2-2008 Q4-2009 Q2-2011 Q4-2012 Q2-2014
Public Sector Borrowing Private Sector Borrowing
Source: Haver Analytics and Roubini Global Economics
Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time
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